Most audits begin with the taxpayers receiving a letter advising them that their last three years tax returns for the last three years have been selected for examination. Sometimes, the IRS demands that proof of a certain deduction (alimony is a favorite) be mailed back to them. This type of audit (a correspondence audit) is accomplished through the mail. In other cases, the local IRS office will send the taxpayer a letter demanding that the taxpayer come to their office (an office audit) and produce a laundry list of documents. Usually, this list consists of bills, receipts, bank statements, credit card statements, cancelled checks and so on. The last type of audit (the field audit) has the IRS agent going to the taxpayers’ home or business.
The IRS reviews the taxpayers’ records and issues findings. Generally, the IRS alleges that the taxpayers’ records were insufficient in some way and additional tax is due along with penalties and interest. Because the IRS usually audits three years worth of returns at once, the amount owed can be very high.
If an audit goes bad, taxpayers do have the right to file a request to have the audit results reviewed by the IRS Office of Appeals. If the appeal goes bad, there is judicial review available through the U.S. Tax Court. However, these protections can be lost if the taxpayer does not exercise them within certain time frames. Generally, after the audit the appeal must be requested within thirty days. If court review becomes available the case must be filed in the U.S. Tax Court within 90 days. Miss these deadlines and you have lost your rights.
And if an audit goes really bad, the taxpayers could be facing criminal charges, and time in prison.
Therefore, be very, very, careful when deciding on how to handle your audit. Be advised that accountants, tax representation firms, and other tax professionals are not lawyers. I only bring this up because there is no “attorney-client” privilege between a “tax professional” or “former IRS agent” and a taxpayer. That means that those professionals can be compelled to testify in court against you if the civil audit becomes a criminal case.
At the Winspear Law Group, your audit case will be handled by an experienced tax attorney. Not an out-of-state telemarketer at the far end of a 1-800 number. Your information will be protected by the attorney-client privilege and you will meet with that attorney face-to-face to go over your case. The facts and law related to your situation will be explained to you and an overall case strategy will be developed to deal with your specific situation. If you are facing an audit, call us today for a consultation.